tv [untitled] August 10, 2011 3:31am-4:01am EDT
the biggest issues get a human voice face to face with the news makers. and welcome across town peter little on the brink of bankruptcy time is running out for the american budget deficits failure to raise the debt ceiling could have catastrophic consequences not only for the u.s. but for the entire world how can piling on more debt begin to solve america's fiscal woes. and. discuss america's out of control debt situation i'm joined by martin henican hong kong he's an associate director at the tike group in cambridge we have jeffrey frankel he's a professor of capital formation and growth at the harvard kennedy school and in
new york we cross to joe weisenthal he is a deputy editor at the business insider all right gentlemen this is crosstalk that means you can jump in anytime you want but first let's have a quick look at america's debt mess. going broke going for broke wanting selfhood asked if the l.s.o. fourteen point three trillion dollar debt ceiling is lifted by need me on the lines of course that the u.s. is on a federal budget so how do original money lives public debt at more than fourteen point two trillion dollars and rising by four wheeler and all or is that a massive iou to the next generation forty three cents of every dollar we spend this year. we borrowed against the future of our children the compromise voided a u.s. government shutdown with agreement on the largest single spending cut in u.s. history but thirty eight billion dollars is small change begins to sign myself the debt and last month the wall with largest one trader said it was all out of us
treasuries smile and trillion dollar deficits as far as i'm no scam some counter the world's largest economy has to go for growth and even that isn't possible can it handles that but monsoon christmas isn't all the learnt on strategy and spiraling prices for anything priced in the greenback on the line having confidence in the u.s. dollar and the global economy that on that that if you're going to show up for cross so artsy. ok. and i do go to you first i'd like to read something to you the united states of america if we didn't have the dollar is the defacto reserve currency of the world we'd be greece i mean we are broke bankrupt really bankrupt and that was former treasury secretary secretary james baker how do you reflect upon those words. big
russ was was saying that the u.s. is actually out breaking the greek speakers if you add all of the unfunded liabilities to the national debt figure i mean the national debt figure. isn't really what this is really about but really the unfunded liabilities are the so-called fiscal gap when that's two hundred and two trillion us dollars saw in many ways that's worse than greece the budget deficit is very small as the same as grazier of ten point eight percent budget deficit in the eurozone was formed not that the eurozone is any better i mean they're just blowing up right now too we have to be seeing again pressure on greek and pigs government bonds and even germany and france are increasingly looking shaky on the government as well but just as a reference on the eurozone was found there was a limit of three percent a budget deficit as a percentage of g.d.p. that is normally considered the maximum sustainable so the u.s. is now at ten point eight percent clearly as we have been warning they are beyond the point of no return and we don't really see that they could solve the problem in
any other way then then it's now. stimulated by most analysts the greek greece will have to do it basically some form of the default or debt restructuring or very very high inflation in their respective currency to get really out of this debt saw resave stay out of the u.s. dollar stay out of any form of medium to long term u.s. treasuries but by the way also eurozone doesn't look better again saw the rest we are very optimistic on it ok jeffrey in cambridge i go to you is that too bleak of a picture there i mean packed the past the point of no return that's what martin said. well absolutely not i'm not sure i heard that right there is there's no chance we're going to have a restructuring of the debt i mean we have a very serious long term debt problem we've had it for quite a while it's it's long term in two ways one that the problem is that deficits the moment the problem is the retirements and the rapidly increase in pensions and
health spending medicare and social security that are going to come over the next few decades that's a problem it's also long term in the sense that we we've been facing this problem for thirty years many people like myself have been worried about this for thirty years there's nothing magic about about this year the only thing that's magic about this here is it's become a political issue this year the american political system kind of bizarrely swings back and forth between not being concerned at all about the problem and making it much worse with huge tax cuts like we did in the early eighty's when james baker was working for ronald reagan or as we did in the bush administration versus times when all of a sudden we're concerned about it i have happy that i mean if we're concerned about it fine let's take advantage of that political crisis to solve the problem but if you look at. the willingness of foreigners to hold u.s. treasury securities there isn't the slightest sign that they that they're getting tired of it so to use the phrase. debt crisis is to my mind absurd five years ago i
don't. really know if they have been crying a lot of debt yet because nobody has buying it. ok i was just following this to look at so it was a lot of other china's buying i mean we know i mean it isn't just the u.s. federal reserve lots of other central banks like china are buying now you might say at some point they're going to stop and i'm worried about that too but at the moment they're not slowing down their purchases foreign central banks ok joe where you where do you jim and where do you jump in all this. generally the view that the crisis is totally overhyped i mean this idea is like will if we didn't have the dollar we would be greece but we do of the dollar and it is. we have a fundamentally different monetary system the various degrees doesn't control its own currency they're suddenly borrowing in someone else's currency they have to build up a surplus and then pay it back we have a fundamentally different system than that and to compare us to greece or ireland or any other trade the comparison is just wrong and i think look this is something that politicians freak out about and. the other guys said all the sudden it's
become a political issue but if you actually i look at the market i look at what the market is reacting to america's debt and everything is knowing that all the math is known and everyone's free out of our banker but the market doesn't seem to care and is not concerned so i really tend to think the issue is mainly a lot of hype ok if i go back to martin i mean the market of the the market didn't isn't particularly concerned by it but it seems to me when everything gets goes sour the markets are the ones that are saved the bankers the ones that are saving mean if there is a crisis they're going to come out on top like they did in the last crisis here i mean our politicians are. underestimating this problem because it's just so gigantic i mean i have a calculator on my computer and i can't get fourteen trillion dollars on a numbers to digitalize it's a big number it's a really big number and believing that it's going to be cut down when the budgets continue i mean the defense budget continues to expand i mean if we reach the point
where we're there is going to be a clash of this system you can't keep borrowing forever everybody knows that. but obviously most of them put it in stone and really seem to understand the situation if you do maybe they do and therefore for other reasons out for a to raise their voices or if they do they're marginalized in some way or another although now more recently you see those raising the issue of skating a bit more attention finally because this is it's now become this political issue but obviously that was ongoing before but i would just like to come back to jeffrey's committee on the market the market isn't seeing the danger because that's a very important one but if you're talking about the market there are two sayings to look at that one the stock market the bond market and the commodity market so actually is three and that way but mainly if you're looking at stocks market because i would put it into the good of real assets because stocks represent firms companies there's real asset behind them or services for which they can increase
the prices and this information and commodities also represent tangible assets so if these markets are in warri gold and silver they're going up a lot what do you what do you see void i mean i think the more broadly it's a market gets about this over and debt crisis and the resulting inflation hyperinflation because that's the only way they could possibly get rid of the debt the more worried the market gets the higher you see commodity prices rise gold and serve our rise as a hedge against this possible bankruptcy or very high inflation as a result of bankruptcy as well as an indirect bankruptcy and also the stock market could actually rise on inflation expectations so really what you want to watch there is the bond market and you're right to some extent we haven't really seen a sell over there yet but that's why for investors now as bill gross the story it's absolutely now the time to get out and the long term balance will not be had an even if anything when we would even short it because you're still in the dollar and the dollar may just suffer through the devaluation so no i don't really see that
the market isn't getting a just in the bond market but that's going to come now no no graduate you want to jump in there jeff as well you want to do the bill gross the. yeah i don't know what i mean joe for shit i'm going to be selling bonds is. drastically misunderstood everyone saying oh he's selling bonds because he thinks the government is going bankrupt or what not that's actually not what's going on he's selling bonds because he anticipates the end of q e two essentially. the fed goes back to normal zero interest rates and so the negative interest rates that's essentially a rate hike and historically that would be a good reason to sell bonds if you actually look at what his partner mohamed el area is saying elsewhere is like of the ten year yield got a bit higher we pry actually buy bonds again so this is another thing people look at his move and start to freak out and say oh this means that he thinks the government is going bankrupt is actually what you read is amazing to me you know but i don't think this rising. so how do you possibly single you even say right
interest rates are going to be on the rise how do you possibly saying that these debt numbers are high interest rates are going to be bearable by the united states government so that's one issue but i want to jump in here let me go to. the gym just going yeah i see and. so i seem to be between the other two panelists in a sense number one we definitely have a long term fiscal situation which we need to address and at some point if we don't there could be a crisis certainly there is the risk that eventually could be ten years from now there could be a sharp increase in inflation and interest rates and fall in the bond market we want to avoid that we can do it it's not it's not impossible if we have a balanced kind of program to address it and for my money president obama recently is recent speech addressing it just broadly speaking was a kind of balance we need to do a little bit of slowing the rate of growth of entitlements we need to cut the
mystic spending we need to cut military spending we need to do something on the tax side we need to do a little bit and maybe we'll succeed in doing that we certainly can if i sat down with economists you know a group of economists from both parties we could we could solve it pretty quickly but i'd be doing very very and i don't know because i mean it's going to go to a short break here and after that short break we'll continue our discussion on all that debt stay with party. this is a cable from the u.s. embassy in colombo to talk about here it apparent june seventh incident of extrajudicial executions the military reported to the press that on that day they killed nine guerrillas in combat desecration by instructs young couldn't you know
and then strongly suggest however that the nine were executed by the army and then dressed in military fatigues. to. explain how you know this kind of phenomenon where bodies are dressed up as guerrillas and presented as killed in action and this and this the idea that you need to produce these actually encouraged paramilitary collaboration this is a cia document central intelligence agency they knew about these activities they knew they were happening they knew about links to paramilitary groups and yet. usaid continued to. download the official tea application on the phone only pulled talk from the top story. life on the go.
video on demand. build costs and already just feeds now with the palm of your. question on t.v. dot com. and. welcome back you're cross talk i'm pamela bell to remind you we're discussing if the u.s. will default. ok jeff i want to go back to you because you said something really interesting if you could could get members of both parties together you could solve this here isn't really a revenue problem and not a spending problem how to generate revenue. it's but i said if we get economists together of these. times ok. i'm going.
you know i mean the good the good even though it's there's at the moment somewhat surprisingly i would say the markets are completely relaxed there's no sign that they're nervous about holding us that and as long as they go on doing that we don't have a crisis but we be fullish to rely on that forever that's so that's. that's one point it's kind of nonsensical that at this moment in history two thousand and eleven is when american politicians are suddenly viewing this as a crisis they would've been much much easier much much better to have just half of the support for fiscal stabilization ten years ago or five years ago but we are where we are the good news is maybe we can take advantage of this all this political ferment to address the problem the bad news is that one of the two political parties is speaking nonsense from an arithmetic viewpoint the republicans think that they can solve the budget deficit by tax cuts and i mean it's just
a complete nonsense and we've shown this over and over again reagan thought the same thing and the budget deficit got much worse he could triple the national debt george w. bush sought that same thing and the budget got much worse he doubled added created more debt than all twenty thirty previous presidents and his father and reagan combined so now the republicans are saying exactly the same thing we're going to we're worried about the budget deficit so we're going to cut taxes it makes no sense ok joe what about that because you know there's a particular the united states there's a lot of. wealth in the sense of financial speculation in things like there's an there's a concentration of wealth here i mean i know it's politically incorrect to talk about taxing people in a bad time but there are some people that have a lot more than others ok and if so if the country is so concerned about debt then you know didn't generate a little bit more revenue over a ten year period or something like that i mean the rich are going to stay rich.
yes i totally agree that this idea that we face. catastrophe and we're going to become the next greece and have all this and yet this is so severe and it could threaten our prosperity for generations but we can't raise taxes slightly on anyone is an absurd level of sort of split thinking it seems completely contradictory i think what this basically exposes that is that most of the debate is actually just a pretense for getting. it's the whole thing is a pretense for getting something else so it's a pretense the republicans want to use the debate as a opportunity to weak in some of the social safety nets and cut taxes the democrats will also you know will of gree with the republicans that the debt is an issue and they want to use it as an opportunity to raise taxes and cut defense spending so this big problem that everyone agrees that it's a huge problem and it's really just an opportunity to push whatever vision they
already had on everything else you know joe it sounds like to me that everybody wants to go to heaven but nobody wants to die martin if i can go to you i mean if the if this really is a political football and i would agree with are the two against it is a political football here because somebody wants something for something ok but isn't this really like the the people on the titanic arguing over the seating order on the top deck because it's still worse and worse. absolutely there even this debate here i mean if historian jeffrey i think dad today getting carried away in this i do a lot of ideological debates and arguing with totally ignoring was actually the numbers tell us and because we're also talking about the rating because there be a rating downgrade under nineteen states on the way to bank potentially bankruptcy also i just want to say not all of the rating agencies are stuck in this type of thinking and giving the u.s. a aaa but actually the chinese rating agency. has downgraded in november last
year's united states plus it is a negative outlook and i just want to give you a call because he also does gave me one from the chairman of the double global rating agency and he is saying the western rating agencies are politicized and highly highly ideological and they do not adhere to objective standard as the u.s. is insolvent and faces bankruptcy as a pure debt the nation but the rating agencies still give it a high rating ranking so again you know this debate about being about a few a billion dollars cut a deal adding there is totally irrelevant i think if anything i mean one one hole that i do see for the united states even in the in the near future now it may be our great actors are very interested with china the projections are now that. china is going to grow it's going to double over the next five years and you look at what this has done to brazil so there are some lightnings but certainly not the budget deficit again i don't see a way out of this short of structuring everything as is just you know. from people
who don't understand basic of the moment jeff if i can go to you. know the structure and is nonsense grand there are so many ways we could start restructuring the restructuring is nonsense we want to avoid a situation where ten or twenty or thirty years from now with we have a huge year all the revenue is growing and we're borrowing from abroad to finance medicare and we want to avoid a situation where we might be forced to adopt. twenty years from now the idea that there is any chance of a restructuring you know within the next few years i'm sorry is just nonsense i don't understand why my fellow panelists is saying that yes yes that's a serious problem yes we should address that and there's all kinds of ways we could address that they're politically very costly very dangerous the politicians don't want to say them but you know it's if we had. a value added tax or greenhouse gas emission permits together with steps that many of us are
proposed to slow the rate of growth of spending in entitlements and to trim defense spending in addition to domestic spending do a little bit all around it can be done the problem is a political one it's not an economic problem joe if i can go to you if you think there's a mindset go ahead and i was going to say isn't there just a mindset in the united states is that the dollars just too big to fail which is too important in the world and we'll just put it off in a few more years will make a lot of noise about lifting the ceiling in middle of it somebody else worry about it because it's just pointed out you know ten years from now twenty years from now thirty years from nobody in office today is going to be in office then. actually i kind of thing that obviously there's a there is that definitely this idea that you know we are too big to fail but what i think is actually more interesting is this kind of opposite strain of thought that's having this kind of liquidation is like let's not raise the debt ceiling now let's just bite the bullet and default let's restructure our debt let's just pull the rug out from under the u.s. banking system and under the dollar right now that's a kind of
a surprising new strain that you hear more and more of what if there is no reason to restructure actually you know people say oh the debt situation is getting worse and worse even by some metrics it's not interest payments as a percentage of tax revenue or interest payments as a percentage of g.d.p. have actually gone down because interest rates have gone down over the last twenty or so years so it is we are we have this thing we have a lot of people want to take something incredibly painful want to do something drastic like not raise the debt ceiling when there actually isn't any kind of external force that suggests we need to do something like that jeff you want to jump in there. well yeah i want to i want to make clear that the only reason why words like you know default or even are even mentioned by anybody is not because we're in a great situation but rather because the two parties of congress are playing a game of chicken a deliberate game of chicken which i mean it's almost like holding holding the
capitol building hostage it's not directly related to the issues involved we're not running as out of money i mean other countries raise their debt all the time and as long as the debt is increasing too rapidly for example if it's coming down as a share of g.d.p. you know it's not that high is that that's that's not an issue we happen to have all kinds of corks in our political system and one of them is that if one of the two parties chooses to pull the pin on the hangar date and say if you don't give me my way on what i want then these other issues like you know prohibiting abortion and stopping abortions the district lobbyist irrelevant things i'm going to blow us all up i don't hear anyone anyone a single person in the united states saying we ought to restructure our debt rather it's it's going to blow us all up if you don't give me my way you know marni it seems to me they did the if the u.s. isn't financially bankrupt it's intellectually bankrupt according to and i'm kind of extrapolating from what jeff had to say but again you know i mean the thing is is that people are using this is a political opportunity there may be
a crisis that may not be a crisis but i'm going to get what i want to portion was mentioned i read that earlier before i'm going to do this program here but there's a lot of other things that people just want to you know a lot of horse trading and again as we're going the titanic is going to its final destination people are now waking up to what really needs to be done jeff mentioned some very good things. yeah i mean definitely. debating you know maybe even even soon we will have the debate on raising the debt ceiling or not raising the debt ceiling but why this is being debated saying the authority who can really decide on whether or not they're going to raise the debt ceiling of the u.s. is the bond market and of course the major bond investor saw i think that's really the same to watch we have been watching the eurozone one market where years in the beginning also rising very slowly and then suddenly spiking and if it hadn't been for as a bailouts of now it's really yours on countries they would already be history and this can go very fast or for one to invest doesn't particularly this is something to watch very very carefully in all u.s. years going up and just last week actually out of the u.k.
you know an advisor to the central bank saying that within one year a u.k. interest rate might quadruple so if this is something that's going to happen around the world as a result of the rising inflation which you see are affected in commodity prices gold you know silver has been surging like there's no tomorrow and there is the fear of the rising to force way rising potential bankruptcies and all of those inflation and if that continues again as inflation rises interest rates would have to rise because one investors demand it and this is something to watch very carefully whether or not you believe the u.s. will go bankrupt or not do watch the rates they were probably tell you earlier so what's going to happen all right jeffrey i'm going to give you the last word we're going to be are we to be having this conversation a year from now. yeah yeah well i mean the fifth we should be afraid that met at some point investors get tired of their current eagerness to
hold us bonds and there will be a decline in us bond market an increase in interest rates that is not a default or restructuring i do not understand why that word those words have been used at all on this show all right gentlemen we've run out of time here many thanks to my guest today in hong kong cambridge and in new york and thanks to our viewers for watching us here on r.t. see you next time and remember crosstalk.
i think. it's a massive austerity cuts in the government's budget policies a blame for losing control of the streets. in the u.k. . president nicolas sarkozy is cutting short his summer holiday to hold an emergency meeting on the euro crisis as fears grow from the next in line to lose its top credit rating. and activists in russia take matters into their own hands when it comes to catching paedophiles who escaped justice as current sex crimes laws slammed for being inadequate. international news in coming live from moscow this is all twenty four hours a day just turned day here in the russian capital.